- In the absence of express norms, companies use secondary market buys to accumulate shares for Esop schemes
- Some employee welfare schemes have accumulated a disproportionate amount of shares from the market
- Analysts fear these schemes are used by promoters as vehicles to “increase control surreptitiously”
- Sebi has decided such schemes would not be allowed to make purchases from the secondary market
According to a BS Research Bureau study of listed companies that have declared their shareholding patterns as of June 30, there were over a hundred companies that had employee welfare schemes as shareholders. Of these, 15 employee welfare schemes had holdings of over five per cent in their respective companies. L&T Employee Welfare Foundation, which holds 12.14 per cent in diversified major Larsen & Toubro, is the largest such scheme. Esop trusts with high holdings include PSPL ESOP Management Trust, which holds 8.67 per cent in Persistent Systems. Patel Engineering (8.66 per cent), B2B Soft Tech (5.18 per cent), Solix Technologies (4.72 per cent) and Agrotech Foods (4.01 per cent) also have significant holdings by employee welfare schemes.
Pavan Kumar Vijay, managing director, Corporate Professionals, said, “Esop trusts have a specific purpose. They are meant to hold shares on behalf of employees. These trusts should not be used as portfolio managers for promoters.”
Earlier this month, the Canada-based Veritas Investment Research pointed out how Indiabulls’ employee welfare trust (EWT), an Esop trust of the Indiabulls group, held a huge chunk of shares in Indiabulls Real Estate. According to Veritas, EWT was formed in October 2010 and soon after bought some 26.8 million shares of Indiabulls Financial Services (IBFSL) at a cost of Rs 480 crore. It also purchased 39.7 million shares of Indiabulls Real Estate during FY11 and FY12. In response, Indiabulls had said the EWT was not a 100 per cent subsidiary and operated at an arm’s length through independent trustees. “IBFSL has maintained a very healthy practice of grant of Esops to employees even before it went public in 2004. The Esop scheme of the company is in line with the other leading housing finance companies and NBFCs,” Indiabulls had said.
Parekh said regulatory guidelines on the timeline for non-compliant schemes to fall in line were expected. “If everyone unwinds in one go, there could be some impact on the market. They might have to phase it out,” he said.